The Broadbent Blog

Mel Watkins: Comment on Towards a More Equal Canada

It is uncertain which is more puzzling: the sudden surge in inequality in developed countries in recent times, or the failure of this to generate a sufficient response in the form of a countervailing politics.

Nor is that all there is to the puzzle. For the increase in inequality within these nations has happened at the same time as inequality among nations has lessened. For the first time since the Industrial Revolution, incomes have converged globally, which is no small matter. It has also happened at the same time as there has been a truly impressive human rights revolution, particularly within those developed countries, one that has decreed there should be equal rights for groups racially discriminated against – note the great civil rights victories for African-Americans in the United States in the 1960s, and the increasing salience of aboriginal rights in Canada – as well as for women, for gays and lesbians, for rights for children, for animal rights.

How is it possible that, in the midst of this, the inequality which had been central to politics for a century suddenly worsened?

These questions are hard enough to pose, impossible to fully answer. Let me take the briefest of stabs. Clearly capitalism as we know it has changed dramatically: the rights revolution is a reform of the first order, creating rights in some cases for the first time in history. Yet there is a terrible obstinacy about our masters, the capitalists, and the governments they are willing to tolerate: they can be made to take some steps forward but they will do their best to simultaneously take other steps backward. At the same time, they have perverted the meaning of human rights by asserting the right to free enterprise as the overriding right.

All of this has been happening during the latest stage of imperial capitalism, which we have come to call globalization. This intensification of trade has meant that countries have switched from emphasis on their domestic markets, which are now opened to the world, to external markets to which they export. As a result, the distribution of income within countries is seemingly less relevant, while there is downward pressure on wages to be “competitive” in both the home market and foreign markets. This could prove to be something of a fool’s paradise as domestic consumers compensate for the reduction of their standard of living by giving into the encouragement to head deeper into debt, a direction threatening the longer-term viability of the economy. At the same time, the rich and the super-rich have more than they can possibly spend at home and will be disinclined to invest there either in the face of the markets they have themselves shrunk.

What has happened to income inequality in the US, the UK, and to a lesser but still sickening degree within Canada, is a huge step backwards. My plea is that it should now be made central to the politics of the left the better to restore it to the politics of the country.

And, indeed, there is reason here for hope. When we measure income inequality as determined by the market, it must always be borne in mind that the market operates within a context moulded by government policy, for example, minimum wage legislation and union rights. We must then make the distinction between incomes as determined by the market and incomes after taxes and transfers, for the inequality of the first is greater than the inequality of the second.

Thus the ways in which government policy can be brought to bear on inequality are clear. We need to stop and ponder this point, for it means, simply, that government matters. If government can make things worse, it can also make things better.

Let us describe the gap, between the rawness and cruelty of what the market yields, as unmitigated or even worsened by the neo-conservative state, and what the reformist, dare we say, compassionate, state can do, as the measure of social democracy - for the hallmark of social democracy is the use of the state for progressive purposes.

I am much impressed – informed intellectually and inspired morally - by the final writings of that great and courageous intellectual, the American historian of Europe, Tony Judt, notably his brief meditation on the victories and etiolation of social democracy, Ill Fares the Land. When the right pretends that the past discredits the left, the response is to point to the “welfare state” and its attendant prosperity, created not by the right but by the social democratic insistence of the left and centre-left. The legacy of the right, certainly here in Canada, is not only less equality but, contrary to all their promises and claims, lower economic growth, persistent productivity problems, and higher unemployment.

I do not mean - nor did Judt - that putting income inequality on the political agenda is an easy matter. The emergence, however, since Judt wrote, of the Occupy movement and its focus on the obscene “earnings” of the 1% may well be a harbinger of future progress in lessening inequality. The issue is now more clearly on the political agenda. The left and decent folk, who have been silent too long, should draw from all this the encouragement they need.

Mel Watkins is Professor Emeritus of Economics at the University of Toronto.